Norwegian Air drops cost-cutting target as inflation stings

OSLO (Reuters) -Norwegian Air said on Thursday inflationary pressure had forced it to scrap its cost reduction target as it reported second-quarter earnings below expectations, and flagged it was looking into how it would pay its first-ever dividend.

Demand for air travel in Europe, meanwhile, has been strong and the carrier said September-October bookings remained robust after a summer season that was "historically" good.

Norwegian reported a profit before interest, tax, depreciation (EBIT) of 627 million crowns for the April to June quarter, down from 1.36 billion in the year-ago period and missing the 726 million seen by analysts in a company-provided consensus poll.

The year-ago EBIT figure was boosted by 2.1 billion relating to an aircraft purchase deal.

Rising supplier costs and salaries in the airline industry have meant Norwegian, which is also experiencing currency headwinds, has abandoned its target of cutting non-fuel unit cost this year compared to 2022, CEO Geir Karlsen told Reuters.

"We're hit by inflation in general, and we see that salaries for perhaps especially pilots in the airline industry are under a lot of pressure and we will discuss this issue as well," he said.

Belgian pilots at rival Ryanair have held strikes on three occasions this summer, seeking higher wages and better working conditions.

Karlsen said Norwegian had hedged 50% of its fuel costs for the rest of the year at "very attractive prices."

Norwegian, which underwent a financial restructuring during the COVID pandemic, said on Thursday it plans to pay back some of its debt as the board looks to "enable ... a potential dividend distribution" to shareholders.

As part of this process, Norwegian said it would exercise an option to repay its NAS13 bond amounting to 750 million crowns.

The company did not say when dividend payments could potentially start.

(Reporting by Victoria Klesty, editing by Terje Solsvik, Shri Navaratnam and Bernadette Baum)